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How is your credit score calculated?

Key takeaways

  • A credit score is a 3-digit number between 300 and 850.
  • Credit scoring is based on data from your credit report, including payment history and the amount you owe.
  • FICO® and VantageScore® are the 2 most used types of credit score formulas.

Your credit score is a 3-digit number that provides lenders, banks, and other creditors with an at-a-glance understanding of how likely you are to repay what you borrow. Lenders then use your score to determine whether they should offer you a loan or line of credit—and what interest rate you’ll have to pay. Because these two factors can have a big influence on your financial life, it’s important to know how credit scoring works.

Here’s how credit scores are calculated and what you can do to improve yours.

How is your credit score calculated?

Credit scores are calculated based on a record of your previous interactions with lenders—a document called your credit report. Your credit report contains data on what types of accounts you have established with lenders in the past, the dates they were opened, the amounts you borrowed or the credit limits available to you, your account balances, and your payment history. Lenders communicate new information to the credit bureaus that compile these reports—Equifax®, Experian®, and TransUnion®—usually at least once a month. (Not all lenders choose to report data to credit bureaus, though.)

All of that data is analyzed and weighted to provide a rating of your creditworthiness from 300 to 850, with higher scores indicating you’re more likely to repay what you borrow, which can also help qualify you for lower interest rates. There are 2 main credit score formulas: FICO® and VantageScore®. They essentially use the same categories of credit data to compute your score, although each assigns different weights to the categories.

FICO score breakdown

  • 35% payment history: This looks at how consistently you’ve paid your bills and if you paid your bills on time.
  • 30% amounts owed: FICO considers factors such as how much money you owe across all accounts, how much you owe on different types of accounts, and the difference between your owed balance and your credit limit.
  • 15% length of credit history: A long history of maintaining credit accounts can help improve your score.
  • 10% credit mix: This data point looks at the types of credit accounts you have. It’s considered financially healthy to successfully manage multiple account types—such as credit cards, mortgages, and student loans—but it’s not necessary to apply for different types of accounts you don’t need.
  • 10% new credit: Opening several new accounts at the same time could hint to lenders that you may be at risk for default, or stop making payments.

VantageScore 4.0 breakdown

  • 41% payment history: This is the same data point that FICO uses, but with a slightly higher weight for the credit score calculation.
  • 20% depth of credit: VantageScore combines the age of your credit accounts (or the length of your credit history) with the types of credit you carry (your credit mix) to determine your depth of credit.
  • 20% credit utilization: This looks at how much you owe compared to how much credit you have available. It is comparable to FICO’s amounts-owed factor. A high credit utilization rate could be a sign to lenders that you’re living beyond your means.
  • 11% recent credit: This looks at how many new accounts you have.
  • 6% balances: VantageScore looks specifically at how much you owe, and high balances could lower your score, even if you are current on all your payments.
  • 2% available credit: This looks at the amount of available credit you have on revolving accounts, such as credit cards.

You may notice slight differences between your FICO score and your VantageScore. That’s because each of these scoring models consider slightly different data points at different weights to calculate your credit score. Overall, however, your scores should be roughly the same between the 2 scoring models.

What doesn’t affect your credit score

Credit scoring can sometimes feel like an opaque process, and there are some common misconceptions about what goes into calculating these scores. Neither FICO nor VantageScore use any of the following information to determine your score:

  • Race, religion, national origin, sex or gender, or marital status: It is against the Equal Credit Opportunity Act (ECOA) for any of these factors to be considered in credit transactions, including credit scoring. The ECOA also prohibits discrimination against borrowers on public assistance or those exercising their rights under the Consumer Credit Protection Act.
  • Age: Provided you are old enough to engage in legal contracts, your age cannot be used to determine your creditworthiness. But it is important to note that it takes time for your credit history to build. So if you’re very young your score may be impacted just due to the fact that you haven’t had adequate time to establish a lengthy credit history.
  • Occupation, employment history, salary, and total assets: Lenders may use this information to decide whether to lend to you, but neither FICO nor VantageScore use it to calculate your credit score.
  • Residential location: Where you live does not affect your credit.
  • Interest rates on current loans: This information is not reflected in your score.
  • Credit counseling: Any information about your participation (or non-participation) in a credit counseling program will not affect your credit score.
  • Child or family support obligations in good standing: While overdue or delinquent family support payments are reported to the credit bureaus and included in your credit score calculations, your credit score does not include current family support obligations in good standing.
  • Soft credit inquiries: “Soft” inquiries are not counted in your credit score. Soft inquiries include:
    • Consumer-initiated inquiries, such as checking your own credit report.
    • Promotional inquiries, such as creditors checking your report so they can extend a pre-approved credit offer to you.
    • Administrative inquiries, such as when a current lender reviews your account with them.
    • Inquiries by employers that may check your credit report before offering you a job. They cannot, however, see your credit score.

How to maintain or increase your credit score

The steps you’ll take to increase your credit score are the same ones you’ll follow to maintain a good credit score once you’ve achieved it. Here are the most important strategies to follow to get and keep a good credit score:

  1. Pay all your bills on time. Consider setting up automatic payments so you’ve always paid by the due date. Enabling autopay might even get you a small discount from companies like your cell phone carrier.
  2. Keep your balances low. Generally, you want to have a balance that is 30% of your credit limit or lower across all accounts. In other words, if you have a $10,000 credit limit across all of your accounts, aim to keep your balances at or below $3,000.
  3. Keep old credit accounts open. It’s proof to lenders that you have a long credit history. It also increases the amount of available credit you have, which can improve your credit utilization rate. In some cases, a low credit utilization ratio will have a more positive impact on your FICO scores than not using any of your available credit at all.
  4. Don’t apply for multiple loans and credit cards at once. The hard inquiries can lower your credit score and might be a red flag to potential lenders that you’re financially overextended. Depending on your credit history, you may want to wait 3 to 6 months between applications.
  5. Keep an eye on your credit report and dispute any errors you find. Common errors include a misspelled name, wrong address, accounts you didn’t open, or accounts incorrectly reported as late or in default. If you spot an error, dispute it with the credit bureau that listed the mistake ASAP.

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